But out of all this, Verizon Communications Inc. (NYSE:VZ)’s iPhone sales is the biggest news for this quarter. Let’s take a closer look at the company’s performance in this period and analyze what it means for investors.
Verizon’s Apple Inc. (NASDAQ:AAPL) connection – playing a bigger role
In its earnings conference, Verizon Communications Inc. (NYSE:VZ) stated that it activated about 4 million iPhones during the quarter. In total, the Big Red accounted for 7.2 million smartphone activations, which implies that iPhone accounted for over half the company’s smartphone sales for the quarter. However, out of these 4 million iPhones, only half were LTE devices or iPhone 5 and the rest were iPhone 4 and 4S. Huge discounts of $100 and $200 on iPhone 4S and 4 are to be blamed for softer iPhone 5 sales. In comparison, last quarter 6.2 million iPhones were sold, which represented 64% of the total smartphone sales of the carrier.
However, this shouldn’t be taken negatively. The reason being, iPhone 5 was launched in the last quarter of 2012 in the holiday shopping season, which conventionally sees stupendous sales as people go crazy to get their hands on the newly launched iPhone. The first quarter sales trend on the other hand is softer. iPhone sales are usually down in this period just after the holiday season. A number of people may be unhappy with the 33% tumble in iPhone sales compared to the fourth quarter. However, the fact is that 3.2 million iPhones were sold in the first quarter last year, which rose 25% to 4 million this year.
Now it would be interesting to see how the next couple of quarters turn out to be as Galaxy S4 is slated to hit the market. Even Apple Inc. (NASDAQ:AAPL) is heard to be launching a revised version of the iPhone 5 in June.
At present, Verizon Communications Inc. (NYSE:VZ) and Apple’s relationship is getting stronger. There was a time when AT&T Inc. (NYSE:T) was the sole carrier to sell the iPhone. But once the other major carriers Verizon, Sprint Nextel Corporation (NYSE:S) and lately T-Mobile started selling the iPhone, AT&T Inc. (NYSE:T) lost the exclusivity. This made the Dallas carrier get in touch with Android vendors and promote their smartphones to reduce dependence on Apple Inc. (NASDAQ:AAPL).
While Verizon and Apple are getting more crucial to each other’s success, let’s check out the other numbers that made the largest US carrier post such a strong quarter.
A dive into the numbers
The company saw a 4.2% growth in its revenue, which increased to $29.4 billion, compared to last year’s revenue figure. The bottom-line experienced an impressive jump of 15.8% to $1.95 billion. The company’s service revenue grew 8.6% to $16.7 billion, which forms a major chunk of Verizon’s total revenue.
In all this, the wireless margin of over 50% came as the biggest surprise from the carrier, particularly as the past few quarters showed a decline in margins. Closest rival AT&T recorded a wireless margin of 41.6% in the first quarter of 2012.
Also, the carrier beat Wall Street estimates of 634,000 customer additions by adding 677,000 subscribers, which was up from 501,000 additions last year. Other than this Verizon also added 188,000 FiOS Internet and 169,000 FiOS Video subscriptions during the period. The wireline business experienced decent revenue growth of 4.3% to $3.6 billion.
Verizon is off to a good start as both wireless and wireline numbers look pretty much on track. So what’s ahead for the company?
Looking ahead
While spectrum remains the key asset for any wireless operator, particularly at a time when data consumption levels are shooting higher at an incredible rate, both Verizon and AT&T must be looking forward to the incentive spectrum auction planned by regulators. However, policies that aim to restrict their participation in the auction so that smaller players, including Sprint and T-Mobile, get their hands on the lower frequencies have annoyed the biggies.
Another issue that could threaten Verizon’s growth in the coming quarters is T-Mobile’s entry as an iPhone seller on April 12. The fourth largest US carrier is offering iPhone 5 on installment and no-contract basis for $99 as the down payment.
Also both Sprint Nextel Corporation (NYSE:S) and T-Mobile are trying to attack the biggies with renewed forces through their combinations with Softbank and MetroPCS respectively. This is a threat to Verizon’s and AT&T’s dominance as it shall increase competition in the wireless industry in times to come. Last year AT&T and Verizon Communications Inc. (NYSE:VZ) substantially benefited from Sprint Nextel Corporation (NYSE:S)’s and T-Mobile’s weaknesses which helped both the carriers to draw subscribers and increase smartphone market share. The revival of these two players would put pressure on net subscriber additions as well as the mobile market share.
My Takeaway
While other industry players are working hard to effectively compete with the industry giant, Verizon Communications Inc. (NYSE:VZ) has a significant advantage over these players. It is way ahead with its 4G LTE deployment, covering about 500 markets. Though the company’s capital expenditure is running high to build the network, it should pay off in the future as network speed is essential to attract customers. This will continue to drive the company’s future growth.
The article Looking Beyond Verizon’s Earnings originally appeared on Fool.com and is written by Rajesh M..
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